10. The Sources of Growth and the Solow Model

Question 1

What is “convergence” when talking about economic growth?

Answer 1

Convergence occurred when different with different initial levels of per capita income gravitated to a similar income level

Question 2

What is the “output per worker”?

Answer 2

Question 3

What is the “consumption per worker”?

Answer 3

Question 4

What is the “ investment per worker”?

Answer 4

Question 5

What is the “capital per worker”?

Answer 5

Question 6

What does the production function look like when it is in per-worker form?

Answer 6

Question 7

What does the “capital-labour ratio production curve” look like?

Answer 7

Question 8

What is the GDP equation when government spending is 0, and the economy is closed?

Answer 8

Y = C + I

(no G because no gov spending, no NX because economy is closed)

Question 9

What does the “Solow Diagram” look like?

Answer 9

Question 10

What is the capital stock determined by?

Answer 10

• investment
• depreciation

Question 11

What does the Solow model assume about the depreciation rate?

Answer 11

It assume the depreciation rate is a constant fraction of capital

Question 12

What does the ca[ital-accumulation equation show?

Answer 12

The change in capital stock per worker

Question 13

Substituting in for investment from the investment function, the capital-accumulation equation becomes:

Answer 13

Question 14

When does the “Steady state” occur?

Answer 14

Capital-accumulation is 0, capital per capita does not increase

Question 15

What does “Output and consumption in the Solow Model” look like?

Answer 15

Question 16

What does the Solow Model suggest about convergence?

Answer 16

• Countries with low initial levels of capital and output per worker will grow rapidly as kt and yt will rise until they reach their steady state values

–> The Solow model suggests that similar economies will experience convergence